MBA

Financing MBA in Multiple Ways

It is common knowledge that when the Government of India felt the need of having an effective strategy for industrialisation and modernization, it thought of establishing the Indian Institutes of Management. The IIMs were supposed to acquaint students with the latest business techniques adopted across the globe that would give the required impetus to social development agenda which comprised economic growth too. The Government’s efforts resulted in the establishment of world-class institutions that started imparting state-of-the-art Management education in the 1950s and 1960s. Since the very first institute for imparting Management education was set up, over five decades have passed and during this period, Management education has been subjected to radical and revolutionary changes. Most people pursuing an MBA think of the long-term benefits of applying for and obtaining an MBA degree. While some people think that having an MBA will advance their career, others pursue it as a personal accomplishment to be met. However, like most other educational streams, MBA course has become increasingly expensive. This is applicable to India as the fee of the top management colleges of India is rather high.

Whatever motivates an individual to get an MBA, the one obstacle each student faces is paying for and financing an MBA degree. MBA programmes are quite costly and, therefore, paying out of pocket is not commonplace. Most students seek assistance with MBA financing through the Government and private financial institutions. Because of the high cost of MBA programmes, students find it challenging to pay for these programmes without getting financial support from an external resource. There are, however, many sources of funding that are worth exploring. In recent times, education loans have become more widely available through both public sector and private sector banks.

Grants & Scholarships

Merit or financial position of a student is the only criterion for the free scholarships or grants he/she applies for. In other words, an individual’s outstanding performance, his/ her excellence in performing art, distinction in sports, community service or his/her outstanding leadership ability entitle him/her to scholarships or grants. Grants and scholarships are awarded that do not have to be repaid. Merit-based scholarships for MBA programmes are prestigious, and substantial awards are given to applicants who can demonstrate an exceptional academic and professional record, and show potential for future success. There are also many other grants that are offered to a limited range of students—to students of a certain religion, ethnicity, nationality, or academic interest, for example.

Business School Resources

Many B-Schools have provision for various fellowships and scholarship programmes. Students who work on fellowship projects are entitled to funds in exchange for their work on such projects since their admission to the institution. The schools also facilitate corporate funding and loan agreements with banks. Sometimes even a quick browse around a business school website can raise awareness about funding possibilities.
Corporate Sponsorship

Sometimes employers also sponsor the candidates who seek admission into a B-School. Such employers or companies invest in the advanced education of their high-potential employees so that they can develop new skill-sets to improve on the existing ones which enhance their professional abilities. It is an arrangement from which everyone benefits. In return for sponsorship, the company might require the employee to commit to staying for a set number of years after they have finished the MBA. Before agreeing to such an arrangement, it is good to think about whether a binding employment contract fits with your long-term career objectives and personal ambitions.

Educational Loans

On close examination, one can easily notice that education or career loan is by far the easiest means of finance.

★ Banks offer educational loans as they feel that students pursuing an MBA will have the earning power to pay back the loans, especially if you graduate from one of the top 10 B-Schools. Indian nationals have access to a wide range of educational loans geared to fund MBA study programme. Key suppliers include State Bank of India, Allahabad Bank, State Bank of Mysore, Bank of Baroda, the Industrial Development Bank of India, HDFC Bank, Axis Bank, etc. Loans can be used to cover the cost of fees, travel to an overseas school, the cost of study materials, computers, etc. and living expenses.

★ B-Schools make it a point that no student is denied the opportunity to pursue a postgraduate programme in management for want of adequate financial resources. Substantial need-based loans are available for students belonging to economically disadvantaged families. For example, 25 percent of the PGP students at the IIMs can expect to get adequate financial assistance from the institutes’ funds, trusts and companies. Last year, 5 IIMs together gave scholarships worth Rs. 1.8 crores to 255 students.

★ Companies also provide loans to MBA aspirants. The company you work for might fund your MBA programme.

The only key point is that you as an employee might have to sign a bond according to company policy and it might prevent you from finding a better job through campus placements that are offered through your course.

Even after securing some assistance through scholarships, grants, and employer sponsorship, many MBA students will still find it necessary to take a loan to finance their studies and living expenses. There are several banks, private institutions and online lenders that offer student loans. It is important to recognise that the terms, conditions and rates that apply to these loans will vary. Most students completing an MBA agree that they make more money and land more powerful and rewarding jobs with more advancement potential upon completing an MBA programme. The benefit of making more money after finishing an advanced degree is that the student can use the additional salary to pay off debts accumulated while going to school. It could take ten to fifteen years to pay back loans amassed during a typical MBA programme. Some financing options expect you to pay while attending school while others allow you to put off paying back loans until completion of the programme or your student status is suspended. While hard-working MBA aspirants are happy to get selected by the top B-Schools, they are also getting tense thinking about how to pay the high fees in the top B-Schools. This year, all the top Indian B-Schools have hiked their fees. In a country like India, most of the students belong to the middle class; it is a matter of concern for them.

In India, an MBA course is considered as one of the most expensive curricula which cannot be undertaken without any assured form of loan or sponsorship. However, all such apprehensions can be laid to rest as more and more MBA financing options are now available. Thus, students in India wishing to pursue MBA from the top 10 MBA colleges in India or from any other reputed MBA degree institution can feel assured about finding plenty of financing options. Nearly all the nationalised banks in India offer educational loans to students for studying in India and overseas destinations. In fact, MBA loans have emerged among one of the most competitive financial loan options in the current loan market, engaging the attention of top banking institutions. However, it has to be paid due attention with respect to the following: Tax rebate: Under Section 80-E of Income Tax Act 1961, a tax rebate is due on all student loans.

Loan concessions: Some banks provide lower interest rates for girls and economically weaker section students availing themselves of loans.

Besides, the loan applicants must check out the following features:

Tenure: The tenure refers to the period for which the loan is sought. The tenure of the loan impacts various aspects of the loan, including the interest rate and size of the premiums. Longer repayment tenures usually mean more interest payments though the premiums are easier, i.e. smaller in terms of monthly instalments.

Additional Costs: Besides the premium amount, there are many other charges that are computed as a part of your MBA loan. These can total into a significant amount and understanding them is critical.

Administrative Fee: This is amongst the most ignored
aspects when assessing a loan structure, i.e. administrative costs or the fee charged by the loan authority that is often dubbed as ‘processing fee’. These costs are often not clearly demarcated leading to future complications.

Taxes: Like most loans sought for personal financing reasons, the MBA loan amount has implications upon the personal tax filed by the individual. The individual can claim a certain amount of deduction depending upon the amount paid as premiums in the previous year. There are time and amount limitations on the deduction amount that can be sought by the individual when filing taxes.

Prepayment1 Stipulations

Prepayment of the loan is interpreted in different ways by loaning institutions. While some do not have any issues with closing a loan prematurely, some organisations are inclined towards charging a penalty that is calculated with respect to the remainder of the loan tenure. This information should be sought upfront, i.e. at the time of interacting with the institution and assessing the loan structure.

Interest Rate

You have the option of choosing a fixed or floating rate of interest for your loan. These options present certain advantages and disadvantages. The fixed rate ensures that you always know the rate that is going to be charged and there are no surprises. The floating rate might put forth the convenience of lower rates being applied when the market conditions dictate the same but the reverse is also possible, i.e. increase in interest rate is possible.

Documentation Required

Paperwork required for loan processing usually requires : Proof of identity; Proof of residence; Proof of academic qualifications—marksheets of qualifying examinations; Proof of loan amount sought—expenses for the chosen course; Proof of financial security—bank account statements for the last few months; Proof of admission into the named institute— admission papers; Income tax assessment in case the applicant is a working professional.

It is best to state real reasons for any missing documents or incomplete form. However, students seeking financial loans must gather all documents in advance. A checklist is an effective way of keeping track.

Students desirous of pursuing MBA should look for funding from companies at the national level. They should also explore the possibilities at the local level for getting funds from charitable trusts or foundations. For example, the Aditya Birla Scholarship is offered to students who are performers. Do your research well and do not let financial constraints stop you from pursuing your dream career. While MBA education is costly, student loans are easily available. The desirous candidates should look for every option regarding the funds needed for pursuing an MBA course in a reputed institution.

Any investment for such a course is worth the trouble because the return on investment is exceptionally impressive. It helps one not only achieve a very high position but also offers one career flexibility and a pride of place in the organisation one works for.

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